COVID-19 Business Interruption Claims

COVID-19 has created many hardships for businesses, especially for those that were forced to shut down for a period of time. When a business is shut down for reasons beyond the control of the owners and suffers loss of income, it may qualify for business interruption coverage. Often, Business Interruption Coverage, also known as Business Income Coverage, is generally included as part of the business owners’ insurance policy.

What Does BI Cover?

A BI policy usually covers lost revenue based on earnings before being forced to shut down. The revenue that would have been earned would go towards rent or lease payments, payroll, utilities, taxes, and loan payments, so in essence, the coverage would take care of all these items.

This policy also provides for moving the business to a temporary location. It may cover the rent of the new place in addition to income coverage.

Contingent Coverage

In some instances, the policyholder’s business may not have been shut down, but it was unable to continue to do business because a supplier or vendor was shut down. In this situation, the regular policy would most likely not cover loss of income. However, a contingent business interruption coverage policy may address the issue.

This provision is commonly in use when a business does one of the following:

• Relies on a certain vendor, supplier or manufacturer to provide materials or products
• A few customers provide most of the revenue
• The business relies on nearby businesses to bring in customers

An example is if a restaurant is located near a major attraction away from other businesses and residential areas and gets most of its business from tourists. If the attraction closes, the restaurant may get few if any customers. It may qualify for business interruption coverage through a contingent policy.

Some policies include interruption by civil or military authority, which provides coverage if access to the covered property is denied due to a civil order. The time of coverage may be limited to a specific period, such as 14 days or 30 days.

Understanding Physical Loss

One of the terms you will see in BI coverage is physical loss. It’s often included in a statement similar to “physical loss to the insured premises.” While it’s understood to mean damage to the building or goods, the term is open to a broader interpretation. The courts may interpret it to mean loss of access to the property or loss of use or function.

The question for many at this time is whether the COVID-19 virus is a covered incident causing the physical loss of use to the business. Business owners will often assume they aren’t covered because infectious diseases or other terminology indicating a health situation is excluded from the policy. However, in the broadest sense, the virus didn’t cause the business to close. Instead, it was a mandated order by the governor of the state which required the business to suspend operations. The executive order was the direct cause for the closure of the business and the loss of income.

It is these complex factors that make filing a claim more difficult. This exact situation has never been tested in court, which may allow for the courts to interpret the wording in favor of the business.

Coverage for Loss of Income
Sometimes, an insurer will approve a claim but underpay the loss. This often happens when the insurer uses certain factors for payment and the business owner uses others. For example, the period of restoration is the time that the business loss occurred. It begins at the start of the loss, such as when the business is closed and can’t conduct normal operations. It ends when the business is back open and operating normally.

With a lengthy shutdown such as what has happened with COVID-19, the business may lose customers. When they reopen, they are operating below the income they had when they closed. It can take several weeks or months to return to the status before the incident.

Timeline for Filing a Claim
It’s imperative that a business file a claim for business interruption as quickly as possible. Most policies have strict deadlines for such claims, and it’s critical to file even if you think you will be denied without legal intervention.

Once you have filed a claim, the insurer will also be under a timeline to respond in a timely manner. If you are denied, you have the right to seek legal counsel. Our attorneys can review your policy to determine if the wording is ambiguous or if interpretation could be in your favor. They can also review state laws that may have been passed to provide retroactive coverage for businesses that have been impacted by COVID-19 as well as other cases that have successfully made it through litigation.

Business income insurance is complicated and filing a claim can be even more complex. If a business is denied a claim, it shouldn’t necessarily give up. These claims can often be interpreted in different ways by the courts. Many times, the court will interpret the language of the policy in favor of the business and award it a settlement to cover the loss. It’s important to seek legal advice if a business has been denied a claim for income loss from COVID-19. Give us a call to find out how we can help you get the compensation you deserve for your business losses.